Bayesian Model Selection with an Uninformative Prior

Rodney Strachan and Herman van Dijk

No KERP 2004/01, Keele Economics Research Papers from Centre for Economic Research, Keele University

Abstract: Bayesian model selection with posterior probabilities and no subjective prior information is generally not possible due to the Bayes factors being ill-defined. Using careful consideration of the parameter of interest in cointegration analysis and a respecifcation of the triangular model of Phillips (1991), this paper presents an approach that allows for Bayesian comparison of models of cointegration with ‘ignorance’ priors. Using the concept of Stiefel and Grassman manifolds, diffuse priors are specified on dimension and direction of the cointegrating space. The approach is illustrated using a simple term structure of interest rates model.

Keywords: Posterior probability; Laplace approximation; Structural modelling; Cointegration; Exogeneity; Model averaging (search for similar items in EconPapers)
JEL-codes: C11 C32 C52 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2004-01
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Published in Oxford Bulletin of Economics and Statistics, Volume 65, Supplement 1, December 2003, pp. 863-876. [ doi:10.1046/j.0305-9049.2003.00095.x ]

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Journal Article: Bayesian Model Selection with an Uninformative Prior* (2003)
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